1pm’s smart bolt-on buy

A trading update yesterday highlighted that the company is performing bang in line with analysts' profit forecasts for the current financial year to the end of May 2016 that point towards revenues jumping from £5.5m to £12.1m and pre-tax profits almost doubling to £3m. On this basis, expect full-year EPS to increase by a third to 4.9p, and the dividend per share to be lifted by two-thirds to 0.7p, implying that the shares are being rated on 12 times forward earnings with little over two months of the current financial year to go, and offer a prospective dividend yield of 1.1 per cent.

That outcome is well underpinned by the contribution from last summer's £12m acquisition of Academy Leasing, a provider of equipment finance and an equipment and vehicles broker to the SME market ('Powered up for gains', 29 July 2015), and ongoing strong organic growth. After factoring in a placing and open offer to part-finance the acquisition, the EPS increased by more than half to 2.9p in the first half to end-November 2015, so I feel the full-year estimate of 4.9p could easily be surpassed especially once the contribution from another acquisition is factored in.

Smart bolt-on buy

In yesterday's trading update, 1pm also announced the acquisition of Bradgate Business Finance, a leading independent specialist provider of 'hard' asset finance to clients buying business equipment within the construction, recycling and haulage sectors. The acquisition is complementary to the 'soft' asset focus of both 1pm and Academy Leasing and expands the SME market sectors served by the company's range of products and services.

It's worth flagging up that Bradgate achieves an effective and profitable balance between writing lease business on its 'own-book' and 'broking-on' business to a high-quality panel of funders in order to generate cash from commissions, having developed a similar business model to that of Academy Leasing. It's very profitable too, having reported pre-tax profits of £370,000 on revenues of £1.36m in the financial year to end-January 2016. In my view, the £2.2m initial cash consideration, to be funded from 1pm's existing borrowing facilities, represents a sensible purchase price. There is a £550,000 earn-out over the next three years based on Bradgate achieving certain performance targets, too.

The acquisition should also lead to analyst earnings upgrades to both revenue and profit estimates for the new financial year to May 2017. Previously, analysts were predicting 1pm's revenues would increase by a third to £16m, reflecting the full benefit of the Academy acquisition, to lift pre-tax profits by 40 per cent to £4.2m and deliver EPS of 6.3p. On the basis that Bradgate, which will operate as an autonomous business, reported profits equating to around 9 per cent of that forecast, the debt-funded acquisition is likely to be significantly earnings-enhancing. I think it could easily add 0.3p a share to EPS estimates for the 2016-17 financial year. And those additional net earnings help underpin predictions that 1pm's dividend per share can be lifted to 1.5p. On this basis, 1pm's Aim-traded shares are currently trading at less than 10 times earnings estimates and offer a prospective dividend yield of 2.4 per cent for the 2016-17 financial year.

Importantly, for a fast growing finance company credit quality is under control: 1pm's loan portfolio was around £57m at its last balance sheet date and the bad debt charge represented only 0.28 per cent of the book. I understand that write-offs on Bradgate's £3.48m loan portfolio were only £40,000 in its last financial year. Moreover, its pre-tax profits of £370,000 are recorded after accounting for these bad debts and after the payment of dividends.

So, having last advised buying the shares at the time of the half-year results ('A trio of small cap buys', 2 February 2016) when the price was 67p, I have no reason to change that positive stance ahead of a pre-close trading update at the end of May.

On a bid-offer spread of 62p to 62p, and offering 32 per cent upside to my target price of 82p, I continue to rate 1pm's shares a buy.

Please note that I have published two columns today, 12 so far this week, and 21 since Monday last week, all of which are listed below. I am still working my way through a number of results announcements and will endeavour to update my views as soon as possible.

MORE FROM SIMON THOMPSON...

I have written articles on the following companies recently:

■ Plethora Solutions: Take profits at HK$0.079 ('On the takeover trail', 14 March 2016)

■ Somero Enterprises: Buy at 150p; target 185p ('A solid buy', 15 March 2016)

■ 32Red: Run profits at 150p ('32Red in the money, 15 March 2016)

■ Communisis: Sell at 44p ('Patience running short at Communisis', 15 March 2016)

■ Global Energy Development: Sell at 27p ('Global Energy plays waiting game', 15 March 2016)

■ Raven Russia: Sell at 30p ('Raven Russia battens down the hatches', 15 March 2016)

■ Stadium: Buy at 122p, new target price 150p ('Switch on for bumper gains', 16 March 2016)

■ French Connection: Buy at 42.75p ('Return to profitability looms for chic operator', 16 March 2016)

■ Fairpoint: Run profits at 159p ('Fairpoints to make', 17 March 2016)

■ Netplay TV: Buy at 10p ('Netplay's shares spin higher', 21 March 2016)

■ Satellite Solutions Worldwide: Buy at 5.5p, target 9p to 10p ('Blue sky tech play', 21 March 2016)

■ Miton: Buy at 30.5p, new target 38p (‘Riding earnings upgrades’, 22 March 2016)

■ Inland: Run profits at 86p, new target 95p (‘Valuation surge boosts Inland’, 22 March 2016)

■ Pittards: Crystallise loss at 71p (‘Subdued demand hits Pittards’, 22 March 2016)

■ French Connection: Buy at 43p ('Stakebuilding gathers pace at French Connection', 22 March 2016)

■ Safestyle: Run profits at 276p (‘Exploiting a window of opportunity’, 23 March 2016)

■ PV Crystalox: Speculative buy at 10p (‘Lights start to glow at PV Crystalox’, 23 March 2016)

■ Arbuthnot Banking Group: Buy at 1340p (‘Banking on a banking duo’,23 March 2016)

■ Cenkos Securities: Sell at 130p ('Cenkos profits slide', 23 March 2016)

■ Burford Capital: Run profits at 256p (‘Legal eagle flying high’, 24 March 2016)

■ 1pm: Buy at 62p, target 82p (‘1pm’s smart bolt-on buy’, 24 March 2016)

■ Simon Thompson's book Stock Picking for Profit can be purchased online at www.ypdbooks.com, or by telephoning YPDBooks on 01904 431 213 and is being sold through no other source. It is priced at £14.99, plus £2.95 postage and packaging. Simon has published an article outlining the content: 'Secrets to successful stockpicking